Category: Economics

The house withdrew the AHCA today. After seven years of screaming about repealing the ACA, it looks like they can wait longer. I had made some criticisms of Ryan’s plan and so a friend asked me what I thought of Rand Paul’s healthcare bill. There are some good ideas in there, but also some bad ones, and some ones that I’m not so convinced would work out, even though they sound good. So here are my thoughts on it in no particular order.

I liked the Charity and Bad Debt deduction for physicians. Basically, physicians can deduct up to 10% of their gross income for amounts they would have otherwise charged for charitable care or for those with bad debt. I think this may help drive down some healthcare costs, while also helping out people who aren’t able to afford healthcare. But I think this whole issue of healthcare costs itself needs to be looked at more (for example, drug costs).

Paul’s plan is pretty bad for poor or unemployed people in general. It brings back the HIPAA protection for pre-existing conditions, but that is tied to the time you were employed. So if you haven’t been able to get a job for a while, you’re screwed. It also takes away the ACA’s essential health-benefits requirements, community rating restrictions, rating reviews, medical-loss ratio, and other mandates. I think these mandates are necessary because otherwise the system is setup so that it is more profitable for companies to deny coverage than provide it. Not only that, without the individual mandate, healthy or younger people don’t really have any incentive to sign up (not that the individual mandate was doing much in that regard). This means that the individual market is not that profitable for insurance companies, and most Americans get their insurance through employers anyway. So I don’t see how market forces will drive prices down, enough to where younger or healthy people don’t feel like it is such a burden to get insurance, or even to where it is affordable for poor people.

One of Paul’s other proposals is to open competition across state lines. I think that may help drives the prices down a bit, but since purchasing individual-coverage is still largely disincentivized, I still don’t see much change happening. This is also not going to happen immediately, so in the meantime, it will be more profitable for insurance companies to deny coverage to risky (in the sense of costs to the insurer) individuals. This will stress out an already expensive market, because these people will inevitably get sick enough to where they need care. They won’t be able to afford it, and will go bankrupt, causing someone to eat the costs, which forces prices to go up even more as they try to offset the difference. He also mentions expanding the Medicaid Waiver program, which lets states change their Medicaid plans without approval by the HHS. This can allow states to experiment with different coverage-rules, but my admittedly-cynical expectation is that they will change rules in an effort to save costs and not expand coverage, which I think will make the problem I mentioned earlier even worse.

He does propose a tax-related benefit; basically you are allowed to deduct your premiums from your taxable income. But I don’t know if that really would be an incentive. Note that you will end up saving more money if you didn’t get insurance and held onto what you would have paid in premiums, than you would by getting insurance, and then claiming the premium as a tax deduction. To encourage participation in the individual market, there’s stuff in there about Individual Health Pools and Association Health Pools, where a bunch of people can get together and pool their money. It sounds like a good idea in theory, but without more details I can’t say whether it would help or not.

There’s a bunch of stuff related to HSAs, but HSAs are only useful for people with steady income, and most definitely not for people making minimum-wage. He does also propose removing limits, but that won’t help someone making minimum wage either. There’s a funny bit where you can use your HSA to pay for insurance premiums I guess, but why not just pay for it directly if you’re going to be putting money into an HSA? I don’t think HSAs in general work; at least not for a healthcare market with the kinds of costs we see today. People don’t have the information to predict what kind of healthcare they would need. Not only that, people have no idea how much such care would even cost. So how does it really help if you’ve been putting away $200 a month for a year, only to get surgery in December that costs $6000? This is not outside the realm of possibility.

Overall, I think Rand Paul’s plan is worse than the ACA, because it will effectively start off by denying coverage to a bunch of people. Some of the ideas sound good in theory, but I am not convinced they will work out. Some of the ones that may work out, will take too long to do so, which means that a lot of people are going to be without coverage in the meantime; it seems unethical to write them off simply because the market needs time to “correct”. However, I think there are some good ideas in there that could be rolled into ACA — some of the tax-related ideas are good, although I would much prefer a refundable tax-credit for premiums compared to a deduction. The tax benefits for physicians that provide charitable care is also good, and I think it would be helpful to expand those to apply to all sorts of healthcare providers.

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Disclaimer: I am not an economist and I do not claim to have more than a freshman level understanding of it either. Economics was not my favorite subject and I often find it perplexing. What follows is only based on observation; I may not have considered all variables (mainly due to my ignorance of them). Either way, I thought what happened was pretty interesting. If there are any errors in my assumptions or observations, please feel free to correct me.

Bitcoins are a digital currency. Bitcoins aren’t issued by a bank or a central authority. Instead they are generated by computers when they solve complex problems (for more details, go here and here). I haven’t really read all the details about bitcoin exchange rates and how the bitcoin economy works, but at the very least I know that it does follow the law of supply and demand. So when demand increases and there is a fixed supply, the price will increase (bitcoins are constantly being generated, but it appears that demand is outstripping the rate of generation).

About two weeks ago is when I first decided I would try and get some bitcoins of my own. I decided I would try to generate them and assumed I would have some pretty soon (but I obviously didn’t know the details; it’s a little bit like winning the lottery). So I joined a mining pool online at bitcoinplus. I’ve around .04 bitcoins right now (not much). This was obviously taking too long so I thought about looking into buying some bitcoins. I checked the price over a period of days, it was hovering around $8/bc. I didn’t buy any and decided to check up on it later. A few days later (on the 3rd), I checked again, and this time the price had jumped to a little over $14/bc! What caused this spike? A day later, the price spiked again. This time to about $19/bc! I wasn’t sure what was causing the spike because the price had been more or less stable for the last few weeks.

That’s when I came across this Wired article that my friend sent me. It’s about an underground website (that is also anonymous) that lets you buy any drug. The drugs are priced in bitcoins. It would seem that there are a lot of people interested in buying these drugs and therefore these people require bitcoins. I’m theorizing that this is what led to the increased demand for bitcoins and hence the spike in bitcoin prices.

The Wired article was posted on the 1st of June. You can clearly see from the following charts how the price of bitcoins jumped on that one day (it’s about a jump of 30% on the 1st). The biggest spike was on the 4th; essentially a price increase of approximately 350% in just four days! Since the 4th, the price seems to be slowly coming down. Currently it’s sitting at around a little over $18/bc. I’ll probably keep a watch on the price of bitcoins over the next few days to see what happens. I’m assuming that the demand will die down and therefore the prices should eventually come down as well. Looking into this has actually ignited some interest in me to learn a little bit more about bitcoins and the bitcoin economy.

Price: USD/Bitcoin from the MtGox Exchange from 05/01/11 to 06/07/11

Price as percent-changes. USD/Bitcoin from the MtGox Exchange from 05/01/11 to 06/07/11

Normally you hear of currency values and stock prices rising on falling based on events in the world (positive or negative). It’s amazing to see how one little thing can change the prices of commodities. In particular, I found this (bitcoin) example particularly interesting because it’s a relatively insulated economy (i.e., it doesn’t seem to be affected by factors in the traditional market).

tl;dr version: Bitcoin prices were hovering around $8/bc. They jumped to $19/bc when Wired magazine posted an article about an underground market where you can buy illegal drugs using bitcoins.

Update: I was looking at closing prices and so it was showing only prices from the end-of-day. Here’s a chart that includes yesterday’s data. The closing price was a little over $30/bc. That’s an almost 700% increase since the 1st!

Closing prices USD/bc from 5/1/11 to 6/9/11 from the MtGox exchange as a line graph

Closing prices USD/bc from 5/1/11 to 6/9/11 from the MtGox exchange as a line graph

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I came across a few quotes that illustrate why Central Banks (like the Fed) are bad. I think they accurately describe the economic situation that Americans face today. These are from president Andrew Jackson; the only president to abolish the Central Bank and the only president who got rid of the national debt (all emphasis is mine):

The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it. —Andrew Jackson

I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country. —Andrew Jackson

Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. —Andrew Jackson

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. —Andrew Jackson